Hollywood Bribes China

The Foreign Corrupt Practices Act, known as F.C.P.A., “forbids American companies from making illegal payments to government officials or others to ease the way for operations in foreign countries.”[1] The practical difficulty facing American companies doing business around the world is that in some cultures bribes are so ubiquitous they are simply a part of doing business.  For American companies to refuse to participate in what is generally expected can be a competitive disadvantage, particularly if substitutes exist and the practice is widespread.

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

1. Edward Wyatt, Michael Cieply, and Brooks Barnes, “S.E.C. Asks if Hollywood Paid Bribes in China,” The New York Times, April 25, 2012.

Credit-Card Companies in a Conflict of Interest

On April 12, 2012, Hawaii sued Bank of America, Chase, Citi, Barclays, Capital One, Discover, HSBC, and their subsidiaries, “claiming that the banks ‘slammed’ Hawaii credit card customers, charging them for products customers didn't need and that the companies never provided.”[1] The Hawaiian government alleges that the banks used “‘predatory tactics to sign up customers for services they either don’t want or don't qualify for,’ and the companies charged their customers ‘without their knowledge or consent,’ according to a press release issued by the Hawaii attorney general's office.”[2] According to the Attorney General, David Louie, “You don't know that you're enrolling, but they say, 'Oh you just enrolled,' okay, and now they've put a charge on your credit card.”[3]  The banks’ telemarketing departments may have charged customers an average of $150 in the form of small charges.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. Bonnie Kavoussi, “Hawaii Sues Bank of America, Chase, Citi, Others For DeceptiveCredit Card Marketing,” The Huffington Post, April 13, 2012.

2. Ibid.

3. Ibid.

Using Corporate Position to Torture Whistle-Blowers

Jack B. Palmer made a quiet complaint through internal channels at Infosys, an outsourcing company based in India. He suspected some managers were committing visa fraud. His complaint leaked. As a result, investigators from the U.S. Government looked into “whether the company used workers from India for certain kinds of jobs here that were not allowed under their temporary visas, known as B-1.”[1]

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

1. Julia Preston, “Whistle-BlowerClaiming Visa Fraud Keeps His Job, but Not His Work,” The New York Times, April 13, 2012. 

Justice as Fairness: Greece’s Bond-Holder Holdouts

In the wake of the agreement whereby private holders of Greek debt would swap the bonds and take a 75% loss, two or three percent of the private holders—namely, well-financed hedge funds including Aurelius Capital and Elliott Associates—were thought to be mulling over holding out for full pay-outs instead of agreeing to take the loss. Greece’s dilemma would have been to pay them in full in order to avoid a default and face the ire of the holders who took the losses, or risk default by invoking a collective bargaining law to force the holdouts to swap their bonds.

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Tyco’s Kozlowski: Isolation or Work-Release?

L. Dennis Kozlowski, a former CEO of Tyco, was denied parole “due to concern for the public safety and welfare,” according to the New York Department of Corrections.[1] A parole board ruled that releasing him in 2012 would have the effect of minimizing his corporate crimes and affect public safety. The board concluded that early release would “not be compatible with the welfare of society at large, and would tend to deprecate the seriousness” of his offenses.[2] He was convicted in 2005 of looting nearly $600 million in bonuses and other payments from Tyco in the 1990s.

As much of a sentence of 8 to 25 years in prison may seem to befit such a case of greed and abuse of corporate position, that Kozlowski was transferred three months before the denial of parole to a minimum-security facility in Manhattan and approved in a work-release program suggests that the seriousness of his crimes did not translate into the punishment after all.

Although white-collar convicts should not be conflated with murderers and rapists, prison should not be conflated with a dorm for the corporate criminals. Put another way, the punishment ought to fit the crime (rather than another, or none). If the sentence includes prison, then prison it should be.

It is worth asking, however, whether prison is suitable for white-collar crime. Put another way, would the public safety really have been compromised had Kozlowski been released early? Does stealing $600 from a corporation without any threat of violence put anyone’s safety at risk? If not, then only enough security to keep the criminals in the prison facility should be necessary, as they are not dangerous. This does not mean an open door policy or giving the inmates permission to go out of the facility to work.

Having to confront oneself for hours without distraction in a cell for a sustained period of time—as if a kid sent to his or her room for hours as a punishment—may well be fitting to the white-collar crime. Furthermore, taking the criminal’s wealth and property and requiring work to repay any losses to others also seems fitting. These two elements ought to be applied successively rather than concurrently so each can have its full effect.

1. Chris Dolmetsch, “Former Tyco Chief Kozlowski Is Denied Parole in New York,” Bloomberg, April 5, 2012; Kevin McCoy, “Former Tyco Chief Told No on Parole,” USA Today, April 6, 2012.

2. Ibid.

The Federal Reserve’s Housing Bubble

During one of his lectures to a class at George Washington University in March of 2012, Ben Bernanke, the chairman of the Federal Reserve, claimed that the central bank’s lower interest rates did not trigger the housing bubble that began in the late 1990s and ended in 2006. For one thing, the Fed did not start cutting interest rates until a few years into the twenty-first century. Also, home prices rose after the Fed later began raising interest rates. Bernanke also cited Europe, where housing booms have not been associated with either tight or loose monetary policy.

                         Ben Bernanke lecturing at Washington University       European Pressphoto Agency

The full essay is at "Essays on the Financial Crisis".

Batting Better Than Goldman Sachs on Corporate Governance

Companies differ on how they handle personal and institutional conflicts of interest. This difference may reflect disagreement over whether a conflict of interest is inherently unethical, or whether one must be exploited for any conduct to be unethical. I take the former position: that to be in a conflict of interest is indeed inherently unethical. At the very least, being in a conflict of interest can trigger or spawn additional conflicts of interest. I point to Goldman Sachs’ response to an institutional stockholder’s corporate governance proposal as a case in point. That case can be contrasted with how the BATs board reacted in terms of corporate governance to bad public relations and a failed IPO.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.